Implementing Our Current Trigger To Reduce Equity Exposure

As you are aware, at our quarterly investment strategy meetings not only do we discuss market and economic factors that might impact investment strategy, we also set triggers that require us to take some action (either buying or selling) based upon some future possible event or occurrence. This is done to allow us to set action or policy in a non-emotional or knee-jerk fashion should the event actually occur and is also a way to manage investment risk. Normally, when we set these triggers, we do not expect the event to occur or believe there is low probability of it occurring; but if it does occur, it would have a material implication for investment strategy.

At our last quarterly investment meeting on March 27, one of the triggers we set was to reduce equity exposure to the low end of the investment range in our models in the event President Trump imposed the full 25% tariffs on imports from China. As of this morning at 12:01 a.m., those 25% tariffs went into effect. We have therefore, as of this morning, reduced equity allocations in all of our models to 90% of a normal allocation and have implemented this change in your accounts as of this morning. Of note, we have only implemented (“pulled”) an action trigger perhaps once or twice before in the history of the firm, so these events are very rare.  

We had been of the belief that there would be some sort of trade agreement and still believe there very well may be one in the not too distant future. As you know, a lot of this is “posturing” on the part of both Trump and the Chinese and we believe Trump’s implementing the increased tariffs is a negotiation ploy. Both sides are engaging in negotiating ploys and neither side wants to appear weak. Our concern with the higher tariffs is that it would have a dampening effect on economic growth and therefore, it would have a negative impact on U.S. corporate profits which is the key fundamental driver of stock prices. We will be following the trade situation closely.

S.R. Schill & Associates

May 10, 2019